The Secretive Group Behind Medicare Reimbursements

Earlier this month, the Washington Post published a blockbuster front-page story about a secretive committee that determines what Medicare pays physicians for their work. Part of the American Medical Association (AMA), the committee estimates the time and intensity of various doctor tasks, and the recommendations are plugged into a formula that sets Medicare reimbursements. The committee overestimates the time it takes to perform myriad medical procedures, which thereby increases the amount doctors can earn from Medicare. One gastroenterologist in the Post story would have to work 26 hours, according to the committee time estimates, to accomplish what he gets done in a typical workday.

What’s surprising about this AMA committee’s influence is not that doctors inflate the time it takes to deliver medical care, as the Post story documented, but that the federal government relies on the committee so heavily — almost blindly at times.

‘What started as an advisory group has taken on a life of its own,’ said Tom Scully, who was Medicare chief during the George W. Bush Administration and is now a partner in a private-equity firm that invests in health care. ‘The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild.’

The Post story made a splash. In a letter to the editor, AMA president Ardis Dee Hoven said the piece was “a disservice to readers” and that the committee recommendations are just guidelines. The Centers for Medicare and Medicaid Services is “not obligated to accept them,” wrote Hoven, although some 90% of the committee’s recommendations are accepted without change, in part, because the federal government has not devoted the resources needed to study physician workflow as the committee does.

Its recommendations apply only to Medicare reimbursements, but are often the basis for what private insurers pay for various physician services. Since doctor decisions drive much of the spending in U.S. health care, the committee’s influence on the cost of overall medical spending is enormous.

While the Post story spawned reactions throughout the health care industry, the truth is that many health-care-policy experts have long known that the AMA group, known as the AMA/Specialty Society RVS Update Committee (RUC), contributes massively to the illogical and inflated way that health care prices are set. (A 2010 investigative story in the Wall Street Journal similarly broke open the truth about RUC.)

Writing on the blog of the journal Health Affairs in February, health care analyst Brian Klepper, who co-founded a website called Replace the RUC!, called the committee “the most blatantly corrosive mechanism of U.S. health care finance.” He added that, through the AMA, “health industry’s grip on U.S. health care policy and practice is all but unshakable and unaccountable, and it appears to have co-opted the reach of law.”

RUC bases its recommendations on surveys filled out by physicians who are told that information they provide on the time and intensity of services will help determine Medicare reimbursement rates. RUC internal deliberations are kept secret and its meetings are closed to the public; outsiders can attend if they receive an invitation, but must sign a nondisclosure agreement.

In her response to the Post story, Hoven of the AMA notes that Medicare physician payments must be budget neutral, meaning higher payments for one service mean lower payments for another. This pits specialists paid primarily for procedures and surgeries against primary-care doctors who make their livings through face-to-face examinations and health management. The recommendations, according to the Post story, heavily favor physician specialists at the expense of primary-care doctors and help drive the U.S. health care system toward more expensive, extraneous medicine and away from simpler, low-tech health care management by internists and family doctors.

In general, primary-care doctors are paid less than specialists, contributing to a shortage of primary-care physicians across the country. The new Affordable Care Act (ACA) makes some efforts to correct the imbalance, giving primary-care doctors bonus payments through Medicare and providing incentives like loan forgiveness for doctors who choose to practice primary care in rural areas.

The ACA contains another provision that may also reduce the power of RUC altogether.

The law creates an entity known as the Independent Payment Advisory Board (IPAB). The group will make recommendations to Congress about Medicare physician payment levels if the growth of Medicare spending gets too far ahead of inflation. The recommendations will automatically go into effect unless Congress votes to rein in spending another way.

IPAB has tremendous potential to curb physician payments in Medicare, which is why the AMA opposes it. An existing method to keep Medicare physician spending under control, called the Medicare Sustainable Growth Rate Formula (SGR), is easier for Congress to override. In a move known as the “doc fix,” Congress regularly votes to cancel SGR reductions in physician pay under heavy pressure from the AMA.

In addition to making recommendations that cannot be easily undone, IPAB has another advantage over RUC. It will operate in the open, with its members announced publicly and its procedures made public.